The document discusses the process of liquidating a partnership. Liquidation involves selling non-cash assets, settling all liabilities, and distributing any remaining cash to partners. Profits and losses are allocated based on partnership agreement ratios. Assets are used to first pay outside creditors, then inside creditors, then partner capital balances, and finally partner profit shares. Partners can apply loan balances against capital account deficiencies. Separate partner assets are used to first pay separate creditors, then partnership creditors, and finally additional partner contributions.
The document discusses the process of liquidating a partnership. Liquidation involves selling non-cash assets, settling all liabilities, and distributing any remaining cash to partners. Profits and losses are allocated based on partnership agreement ratios. Assets are used to first pay outside creditors, then inside creditors, then partner capital balances, and finally partner profit shares. Partners can apply loan balances against capital account deficiencies. Separate partner assets are used to first pay separate creditors, then partnership creditors, and finally additional partner contributions.
The document discusses the process of liquidating a partnership. Liquidation involves selling non-cash assets, settling all liabilities, and distributing any remaining cash to partners. Profits and losses are allocated based on partnership agreement ratios. Assets are used to first pay outside creditors, then inside creditors, then partner capital balances, and finally partner profit shares. Partners can apply loan balances against capital account deficiencies. Separate partner assets are used to first pay separate creditors, then partnership creditors, and finally additional partner contributions.
The document discusses the process of liquidating a partnership. Liquidation involves selling non-cash assets, settling all liabilities, and distributing any remaining cash to partners. Profits and losses are allocated based on partnership agreement ratios. Assets are used to first pay outside creditors, then inside creditors, then partner capital balances, and finally partner profit shares. Partners can apply loan balances against capital account deficiencies. Separate partner assets are used to first pay separate creditors, then partnership creditors, and finally additional partner contributions.
Download as DOCX, PDF, TXT or read online from Scribd
Download as docx, pdf, or txt
You are on page 1/ 3
LIQUIDATION
LIQUIDATION (of a Partnership)– is the winding up of its business activities characterized by sale of all non-cash assets, settlement of all liabilities and distribution of the remaining cash to the partners.
REALIZATION – is the conversion of non-cash assets into cash.
CAPITAL DEFICIENCY – is the excess of a partner’s share in losses over the partner’s capital balance.
PARTNER’S INTEREST – the sum of a partner’s capital and loan accounts – in the partnership.
RULES IN SETTLING ACCOUNTS AFTER DISSOLUTION
ORDER OF PREFERENCE The assets of a general partnership shall be applied in the following order:
First, those owing to outside creditors;
Second, those owing to inside creditors in the form of loans or advances for business expenses by the partners; Third, those owing to the partners with respect to their capital contributions, Lastly, those owing to the partners with respect to their share of the profits.
EXERCISE THE RIGHT OF OFFSET:
This privilege is the legal right of a partner to apply part or all of his loan account balance against his capital deficiency resulting from losses in the realization of the partnership assets.
DISTRIBUTION OF SEPARATE PROPERTIES OF AN INSOLVENT PARTNER
If a partner is insolvent, his personal properties shall be distributed as follows:
First, those owing to separate creditors;
Second, those owing to partnership creditors; Lastly, those owing to the partners by way of additional contributions
Sample Problem:
After several years of operations, the partnership of Arenas, Dulay and Laurente is to be liquidated. After making the closing entries on June 30, 2016, the following accounts remained open:
ACCOUNT TITLE ACCOUNT BALANCE
DEBIT CREDIT
Cash P 50,000 Non-Cash Assets 2,350,000 Liabilities P 400,000 Arenas, Capital 900,000 Dulay, Capital 500,000 Laurente, Capital 600,000
The non-cash assets are sold for P2,650,000. profits and losses are shared equally.
Required: PREPARE A STATEMENT OF PARTNERSHIP LIQUIDATION AND NECESSARY JOURNAL
ENTRIES TO RECORD THE TRANSACTIONS THAT OCCURRED DURING LIQUIDATION. Arenas, Dulay and Laurente Statement of Liquidation June 30, 2016
Assets Capital Capital Capital P/L Ratio 1/3 1/3 1/3 Balances before Liquidation 50,000 2,350,000 400,000 900,000 500,000 600,000 Sale on Non-Cash Assets 2,650,000 (2,350,000) 100,000 100,000 100,000 ----------------------------------------------------------------------------------------------------- Balances 2,700,000 -0- 400,000 1,000,000 600,000 700,000 Payment of Liabilities (400,000) (400,000) ------------------------------------------------------------------------------------------------------ Balances 2,300,000 -0- 1,000,000 600,000 700,000 Payment to partners (2,300,000) (1,000,000) (600,000) (700,000) ------------------------------------------------------------------------------------------------------ -0- -0- -0- -0-
Entries:
1. Sale of non-cash assets
Cash P 2,650,000 Non-cash Assests P 2,350,000 Profit on the Realization of Non-cash assets P 300,000 Profit on the Realization of Non-cash assets P 300,000 Arenas, Capital P 100,000 Dulay, Capital P 100,000 Laurente, Capital P 100,000 2. Liabilities P 400,000 Cash P400,000 3. Arenas, Capital P 1,000,000 Dulay, Capital P 600,000 Laurente, Capital P 700,000 CASH P 2,300,000
Sample Problem 2
After several years of operations, the partnership of Miranda, Leon and Estoque is to be liquidated. After making the closing entries on March 31, 2016 the following accounts remained open:
ACCOUNT TITLE ACCOUNT BALANCE
DEBIT CREDIT Cash P 150,000 Non-Cash Assets 2,600,000 Liabilities P 750,000 Miranda, Capital 400,000 Leon, Capital 600,000 Estoque, Capital 1,000,000
The non-cash assets are sold for P2,150,000. Profits and losses are shared equally.
Required: PREPARE A STATEMENT OF PARTNERSHIP LIQUIDATION AND NECESSARY JOURNAL
ENTRIES TO RECORD THE TRANSACTIONS THAT OCCURRED DURING LIQUIDATION. Miranda, Leon and Estoque Statement of Liquidation March 31, 2016
Cash Non-Cash Liabilities Miranda, Leon , Estoque
Assets Capital Capital Capital P/L Ratio 1/3 1/3 1/3 Balances before Liquidation 150,000 2,600,000 750,000 400,000 600,000 1,000,000 Sale on Non-Cash Assets 2,150,000 (2,600,000) (150,000) (150,000) (150,000) ----------------------------------------------------------------------------------------------------- Balances 2,300,000 -0- 750,000 250,000 450,000 850,000 Payment of Liabilities (750,000) (750,000) ------------------------------------------------------------------------------------------------------ Balances 1, 550,000 -0- 250,000 450,000 850,000 Payment to partners (1,550,000) (250,000) (450,000) (850,000) ------------------------------------------------------------------------------------------------------ -0- -0- -0- -0-
1. Sale of non-cash assets
Cash P 2,150,000 Loss on the Realization of Non-cash assets P 450,000 Non-cash Assests P 2,600,000
Arenas, Capital P 150,000
Dulay, Capital P 150,000 Laurente, Capital P 150,000 Loss on the Realization of Non-cash assets P 450,000
2. Liabilities P 750,000 Cash P750,000 3. Arenas, Capital P 250,000 Dulay, Capital P 450,000 Laurente, Capital P 850,000 CASH P 1,550,000
